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Local Budget Woes Far From Over

Many local governments will continue to struggle in 2011, despite the continuing recovery of the national economy.

Nine in 10 cities are projecting more budget strain this year than last, even after most trimmed staff and services and delayed spending and investment in 2009 and 2010.

Local finances are dependent primarily on property taxes and sales taxes. Hundreds of counties and towns are in the process of reassessing property values, and the slide in real estate values -- plus foreclosures and empty buildings -- will result in less revenue in many areas. Reduced spending by businesses and individuals means sales tax revenues will be flat or even fall.

Tens of thousands of jobs will be eliminated, services will be trimmed and local procurements will be scaled back as governments look to shore up available revenue to cover spending on bare necessities.

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Less-generous pensions and health benefits for new public workers look certain, along with increased pressure to renegotiate local labor contracts to help reduce payrolls. That means local governments will have a tougher time recruiting top talent when the economy starts to improve.

While the situation is grim, we don’t expect any big-city defaults. Uncle Sam and state governments wouldn’t stand for those because of the potential harm to the national recovery.

But the Washington money pipeline is drying up for cities and townships of all sizes. Economic stimulus dollars, which many areas used as a crutch last year and in 2009, are essentially used up.

Plus, Build America Bonds are disappearing. Used by cities for infrastructure projects, the bonds weren’t reauthorized at the end of 2010 and likely won’t be. Also deep-sixed were energy efficiency bonds, which provided about $2 billion in additional funding for local areas.

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Congress has no appetite for more stimulus, especially with GOP cost cutters running the House. And state lawmakers, including more Republicans in governorships and state houses who ran on pledges of fiscal discipline, will be reluctant to dole out significant new aid to localities.

So cities, towns and counties are on their own. They face a staggering combined shortfall of $94 billion in this fiscal year.

Entities of all sizes are in the mess: Philadelphia, Cleveland and Los Angeles, for example. But also Norwalk, Conn.; Eugene, Ore.; Worcester, Mass.; Ocala, Fla.; Modesto, Calif.; and others.

For many, program cuts are the only path remaining. And since the low hanging fruit is gone, the next round of picking will be painful. More four-day school weeks, for instance, will scramble parents’ work and day care schedules. Look for reduced public transportation, too. Clayton County, Ga., for example, axed commuter bus services used by 9,000 residents near Atlanta. Even police and fire services, usually deemed vital, will see cuts. Many areas will make do with older fire trucks or will trim the number of officers per shift.

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In many cities, local providers such as printers, car dealers and school lunch vendors will suffer because of the spending cuts.

There is a silver lining: With smaller budgets and fewer public workers, local governments will be more efficient as the improving economy helps them recover. There could be less waste, bureaucratic overlap and city government inertia, for instance. Dead wood that’s being cut won’t come back.

It might take two years or so, but if the reordered priorities and streamlining remain, the cities and counties that are paying the price now will be poised to prosper.